Though KSE and SECP have provided the appropriate forums to
aggrieved investors to have their grievances against the brokers
of the Exchange resolved as stated above, it has been observed
that the investors do not exercise due care and diligence while
making investment decisions or for that matter in their dealings
with the stock brokers. These lax practices generally leap to
disputes and investors find themselves at a great disadvantage.
To help you safeguard your interest and avoid complaints against the stockbroker,
here are some easy tips.
13.1 Be wise in selecting a broker
• Before selecting a broker, visit the offices of a few
to observe their business practices. Try to gauge the
reputation of the brokers by talking about it with
the people you meet.
• While opening your account with branch offices of the brokers,
first confirm that the branch office and the managing agent
of the office are registered with the stock exchange and the
Securities and Exchange Commission ofPakistan
All offices outside the stock exchange, if not duly authorized,
cannot execute the trades according to the provision of the
law and as such the trades are not enforceable under the
law and the investor can suffer a loss.
• Get clear information on commission rates and services
provided and compare them with that of other brokers.
Commission rates vary with the quality of service and
smaller clients may be subject to higher commission
than larger clients, so don't over negotiate.
• Before starting your dealings with any person, make sure that he is a
permanent employee or a registered agent of the broker.
• It will be beneficial for you to personally meet the broker
or the senior management.
13.2 Always open accounts in your own name
• There are two types of accounts you would need to open for investing
in stocks. A trading account with broker for buying and selling securities
and a depository account for keeping securities. You can open the
depository account either with the broker which is called a subaccount
or directly with the Central Depository Company whichis called an investor account. Think of CDC as bank of securities that
it keeps in digital form.
• Do not trade until you have opened a trading account
with your broker through a standardized account
opening form. Thoroughly read and understand the
terms and conditions of the form. Strike out any inapplicable
clause, sign the form and the deleted clauses
and get it signed by the broker as well. Keep a copy.
• It is better if you open an investor account rather than a sub-account.
In an investor account, you stay in control of your securities because
they can only move once you give a transaction order. In a sub-account,
the broker is in control.While a subaccount reduces some hassle,
it is possible for the broker to move your securities without
authorisation. An investor account costs about Rs. 1500/- per
annum while a sub-account is free but don't compromise on
control for Rs. 1500/-.
13.3 Stay well documented at all times
• Obtain your client identification number that the broker would assign
you for his records.
• Instruct him in writing to enter always this number
in the trading system of the exchange while executing
your trades. This would help in setting an audit trail
of trades made on your account.
• Always obtain signed trade confirmations from your broker at the end
of the trading day. Insist on additional written confirmations if you are
given verbal trade confirmations on recorded lines.
• Make sure that all receipts/confirmations/ deliveries
are issued/made in the name of the stock broker on
proper stationery bearing the name of the stock broker.
aggrieved investors to have their grievances against the brokers
of the Exchange resolved as stated above, it has been observed
that the investors do not exercise due care and diligence while
making investment decisions or for that matter in their dealings
with the stock brokers. These lax practices generally leap to
disputes and investors find themselves at a great disadvantage.
To help you safeguard your interest and avoid complaints against the stockbroker,
here are some easy tips.
13.1 Be wise in selecting a broker
• Before selecting a broker, visit the offices of a few
to observe their business practices. Try to gauge the
reputation of the brokers by talking about it with
the people you meet.
• While opening your account with branch offices of the brokers,
first confirm that the branch office and the managing agent
of the office are registered with the stock exchange and the
Securities and Exchange Commission of
All offices outside the stock exchange, if not duly authorized,
cannot execute the trades according to the provision of the
law and as such the trades are not enforceable under the
law and the investor can suffer a loss.
• Get clear information on commission rates and services
provided and compare them with that of other brokers.
Commission rates vary with the quality of service and
smaller clients may be subject to higher commission
than larger clients, so don't over negotiate.
• Before starting your dealings with any person, make sure that he is a
permanent employee or a registered agent of the broker.
• It will be beneficial for you to personally meet the broker
or the senior management.
13.2 Always open accounts in your own name
• There are two types of accounts you would need to open for investing
in stocks. A trading account with broker for buying and selling securities
and a depository account for keeping securities. You can open the
depository account either with the broker which is called a subaccount
or directly with the Central Depository Company whichis called an investor account. Think of CDC as bank of securities that
it keeps in digital form.
• Do not trade until you have opened a trading account
with your broker through a standardized account
opening form. Thoroughly read and understand the
terms and conditions of the form. Strike out any inapplicable
clause, sign the form and the deleted clauses
and get it signed by the broker as well. Keep a copy.
• It is better if you open an investor account rather than a sub-account.
In an investor account, you stay in control of your securities because
they can only move once you give a transaction order. In a sub-account,
the broker is in control.While a subaccount reduces some hassle,
it is possible for the broker to move your securities without
authorisation. An investor account costs about Rs. 1500/- per
annum while a sub-account is free but don't compromise on
control for Rs. 1500/-.
13.3 Stay well documented at all times
• Obtain your client identification number that the broker would assign
you for his records.
• Instruct him in writing to enter always this number
in the trading system of the exchange while executing
your trades. This would help in setting an audit trail
of trades made on your account.
• Always obtain signed trade confirmations from your broker at the end
of the trading day. Insist on additional written confirmations if you are
given verbal trade confirmations on recorded lines.
• Make sure that all receipts/confirmations/ deliveries
are issued/made in the name of the stock broker on
proper stationery bearing the name of the stock broker.
• Obtain periodic statements from your broker to keep a check on yourtrade positions and account balances. Also get a periodic sub-account
statement from the Central Depository Company to verify your securities
and their movement.
• Make all payments preferably through cross cheques
in the name of the broker only and obtain receipts
of all payments duly signed by the authorized
persons. Keep a record of the cheques given to and
received from your broker.
• All payments are received in the shape of cheque/pay order/demand draft
issued by the stock broker only and not by his agent or any other person.
13.4 Be thorough in trading practices
• Make your payments and deliveries promptly, just as you
would expect your broker to.
• Maintain your safety deposits or marginswith your brokers
at all times. The stock broker is within his legal rights
to square an open position if the investor circumvents his obligation.
• If you don't, your broker would have the right to sell your securities at
your peril and cost.
• Try to place your trade orders with one particular person.
It would reduce chances of misunderstanding.
• Ensure that every time you buy shares, they are transferred in your
account on the settlement day. Delay in transfers might mean that your
broker is using these securi ties for some other purpose.
• Incase of any discrepancy inyour statements, contact
the broker immediately. Don't make simplisticassumptions or leave things to chance. For correspondence
that you think you might need in case of a
complaint, use registered mail or obtain a receipt
from your broker.
13.5 Take responsibility for investment decisions
• Know your financial capacity and needs. Make investments accordingly
and be prepared to take responsibility for them. Stock prices have a habit
of rising or falling very sharply. The rule the world over is the same
"Buyers beware." Your broker is not responsible if you lose money on the
stocks that you buy.
• You can consider taking financial advice but in our
markets there is a dearth of qualified and experienced
professionals who can advise individual investors. Those
you might contact would only tell you what stock they think is looking good regardless of its suitability for you.
• Stay away from discretionary trading account. You are most likely to
have some serious problems with your broker if you leave up to him to
take decisions that you should be taking yourself.
• Do not deposit any money at a fixed return with your
broker to be invested in providing carry over or Badla
financing to others. Such deposits do not have a legal
cover and youmay be exposed to risk of losing your money.
• Do not provide anyone a blanket authority to operate your account in
any manner. • Never give consent to the stock broker to pledge shares with the bank
for borrowing purpose. No stock broker is authorized to pledge shares
belonging to his client for borrowings from a bank. In case the investor
does not take delivery of his shares, he can expose himself to such a risk.
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